Family caregiving has always been an expensive, stressful endeavor but is becoming more so. For the more than 43 million unpaid caregivers in the US, rising healthcare costs, inflation and other key factors are turning up the pressure on families. Let's take a look at the macro trends that are expected to affect caregivers over the next few years.

Inflation’s impact

Every person feels the pinch of inflation, regardless of whether you’re a caregiver. It shows up at the gas pump, where prices have risen 50% since 2019, and at the grocery store, where the average food bill has increased almost 25% during the same period. According to Genworth, the average caregiver spent $10,000 a year on caregiving in 2018, and with inflation that number has likely grown to almost $14,000 today. The impact of this rising cost is increased stress and anxiety as many caregivers struggle to find extra dollars to spend. While inflation has come down since the high of 9% in June 2022, it’s likely to remain somewhat elevated over the next few years and continue to put pressure on caregivers and their families.

Part of the inflation driver is low unemployment and rising wages, which has a dramatic impact on paid caregiving. We often associate family caregiving with those who can’t afford paid caregivers, but that’s not entirely true. According to PHI, there are significantly fewer paid caregivers today than in 2019 due to COVID-19 and one million fewer paid caregivers than will be needed by 2030. There are several reasons for this, but a large driver is that many caregivers left for other industries where the wages were better and the workload much less demanding. 

Another driver is that 25% of paid caregivers are immigrants who left the U.S. in the beginning of the pandemic and haven’t returned, according to the Commonwealth Fund. The U.S. Census Bureau estimates there will be 80 million people over the age of 65 by 2030, and many of them will need caregiver assistance. Given the current worker shortage and the increasing number of adults who need care, it seems likely that family caregivers will continue to be the backstop for their loved ones until we significantly increase the number of paid caregivers.  

This caregiving trend will drive companies to make more permanent workplace changes, which is a benefit for family caregivers. According to Genworth, one out of every three Americans became instant caregivers at the start of COVID, when children and older loved ones moved into their family homes to stay safe. As the pandemic subsided, many have remained at home and created more permanent caregiving situations. For those balancing the responsibility of working and being a caregiver, working from home or hybrid work environments are required. Quiet quitting influenced many companies to reevaluate their workplace strategies and many are now allowing employee scheduling flexibility or job sharing to stave off turnover. In fact, several states, including Maryland, have bills in legislation currently to adopt four-day work weeks for all employees. This experiment may take hold elsewhere and at a minimum is highlighting a shift in how employers and their workers think about work/life balance. As low unemployment forces employers to acquiesce and even further enhance flexibility, this shift will likely continue. 

See also: Insurance's New Math

How can employers get involved?

Tied directly to this new work norm are enhanced employee caregiving benefits. These benefits include robust employee assistance programs (EAP), enhanced mental health benefits, caregiving and daycare assistance and other benefits meant to help ease the burden on caregivers. Employers are more aware than ever that employee caregivers represent a large portion of their workforce and require more assistance to stay on the job. According to the Family Caregiver Alliance, over 60% of these workers had some type of job change during their careers due to caregiving responsibilities, and employers are now paying attention. Evolving caregiving benefits are something we expect to see continue in the workplace and could even accelerate as more companies fight for quality employees and increased productivity.

Technology’s role

It would be impossible to talk about enhancements in caregiving without highlighting the role technology plays. Whether it comes in the shape of new smart home devices, which enable caregivers to virtually watch their loved ones while they’re at work, or new smartphone apps that let families share the caregiving responsibilities, there is more available today than ever before.

Most aging adults want to stay in their home as long as possible, and these advancements are helping them achieve this goal. Future enhancements can be expected in wearable technology, robotics and exoskeletons, which can help aging adults with mobility issues. Machine learning and artificial intelligence will also play a key role in decoding age-related decline and help change the aging trajectory. These are just some of the ways technology will continue to play a vital role in aging in place and caregiving.

The macro trends discussed in this article are just the tip of the iceberg of what’s in store for our aging population and the caregivers who assist them. We can expect new entrants into these categories to push incumbent companies harder and drive more innovation, all of which will benefit the family caregiver and their loved ones.

As insurance agencies increasingly rely on new technology for both back-office and consumer-facing operations, hiring a technology leader to coordinate digitization efforts and upgrades will help maximize the potential of those investments.

An agency technology leader is not another information technology professional. The two have different skillsets, and both are important to an agency’s success.

IT pros vs. technology leaders

IT professionals have no specific background in insurance, but that’s okay because their role is to keep systems up and running on the back side, which is crucial.

Technology leaders, in contrast, focus on the insurance operation first. Their tasks are:

• To analyze how to use the current technology stack to optimize insurance operations. 
• To lead efforts to spot where new technology might work best. The tech leader does the research and analysis, providing agency leadership with supported recommendations.
• To oversee data cleanup, rebuild workflows and identify and eliminate unnecessary technology.
• To help train employees to use new and existing technology.
• To foster future tech leaders within the insurance firm. 

An effective tech leader has experience in insurance systems and processes but also understands organizations and the need to focus on efficiencies. A tech leader intimately understands the agency’s workflow processes and the different end-user experiences of agency leaders, producers, CSRs, other support staff and customers. The leader operates as a high-level thinker, analyzing the agency as a global operation to determine how to integrate technology that benefits the whole, not just its disparate pieces.

Traits of successful tech leaders

The efficiency and profitability of the agency are the tangible benchmarks of their success.

A tech leader needs to be self-motivated, someone who can perform due diligence without handholding. A tech leader’s research is continuous — reviewing vendors and new technologies, monitoring system updates, assessing current operations, looking for new and better ways. 

A tech leader must be highly organized because there are myriad details to consider in insurance and many people whose workflows need to be as efficient as possible.

A tech leader needs to be an effective trainer, willing to sit down with every new employee to review every platform and sales tool, including its visuals, even if that employee won’t use a particular system in their current position. Team members benefit from knowing what is available because one day they might need to use some function of a different system.

Hiring from within

Agencies gain by hiring tech leaders from within their organizations, if possible. Internal candidates will not only understand insurance but also the agency’s unique operations. Internal employees may welcome the growth opportunities a new position with more responsibilities can bring.

Technology partnerships can also help an agency identify key talent. 

See also: 6 Burning Questions on Field Reorganization

My own experience

I was hired from within Deeley Insurance to lead technology after 12 years of insurance experience. I had worked through the different layers of an agency, including at the floor in a support role. My various experiences — including work as a processor, inputting insurance data — gave me a solid foundation for understanding how to improve operations.

Deeley had deployed a number of platforms and technology tools, but some weren’t being used properly or to their maximum potential. One of my early tasks was to lead a process to analyze what functions we actually needed, as well as the capabilities of each system. The process was a smart one, allowing us to knock out several unnecessary elements in our technology stack. Then we analyzed the technologies that we had decided to keep, determining how we could use them to their greatest capability.

This was a positive exercise from which all agencies can benefit. It boosted our efficiencies behind the scenes and streamlined processes for our users. It enabled our leaders, with a couple of clicks, to look into data based on our salespeople and our accounts to be able to sell more insurance. It helped keep our customers and employees happy.

As we continue to adjust to keep up with technology, I ask every day: Why are we using technology that way? How can we better use our data? Why do we need that piece of data?

Hiring a technology leader is a long-term investment. It has helped our leaders at Deeley make great strides, as it can for every agency.

Artificial intelligence is an awesome tool--if you recognize its limitations and work around them. Google didn't. And it paid dearly. 

As you may have read, Google executives gathered on Feb. 7 to tout Bard, what's known as a "generative AI," a la the more famous ChatGPT, as the future of the company. The problem: Google had launched an ad that morning bragging about Bard's ability to answer questions in ways that "can spark a child's imagination about the infinite wonders of the universe." To demonstrate, the ad showed Bard being prompted with the question, "What new discoveries from the James Webb Space Telescope can I tell my 9-year-old about?"--and then completely fabricating an answer. 

Bard's responses included the claim that the telescope took the very first pictures of "exoplanets," or planets outside of earth's solar system, which were, in fact, first photographed almost two decades ago. Oops.

The obvious error on such a high-profile effort knocked $100 billion off the market value of Alphabet (Google's parent) the next day, and the stock has continued sliding, losing roughly $100 billion more of market value since then. 

Wags on social media noted that Google could have avoided the error by, well, just Googling Bard's claims. And that's actually the approach that I recommend for the foreseeable future: Go ahead and start using ChatGPT, Bard and the other generative AIs in all sorts of ways--and many spring to mind--but be aware that they are just providing a rough draft that shouldn't see the light of day until it's vetted by a real, live human being you can trust not to just make stuff up. 

An article in Fortune says ChatGPT is already being widely deployed, despite being so new:

"Business leaders already using ChatGPT told ResumeBuilder.com that their companies already use ChatGPT for a variety of reasons, including 66% for writing code, 58% for copywriting and content creation, 57% for customer support, and 52% for meeting summaries and other documents. In the hiring process, 77% of companies using ChatGPT say they use it to help write job descriptions, 66% to draft interview requisitions, and 65% to respond to applications."

A large law firm is using ChatGPT "across its network of 43 offices to automate and enhance tasks, including contract analysis, due diligence and regulatory compliance." And I can imagine plenty of similar uses in insurance: pulling together files for underwriters, preparing claims reports, helping monitor compliance and so on. 

But that Fortune article also quotes the CEO of OpenAI, the developer of ChatGPT, as saying it shouldn't be relied on for "anything important," and I certainly would err on the side of caution for now--as Google surely wishes it had.

The issue with large language models like those used for generative AIs like ChatGPT and Bard is that they don't know much about the real world. They've just been fed unimaginable amounts of text and learned to imitate it. You give one a prompt, and it figures out what word is most likely to go next and then next after that and after that... and on and on and on. The results are scarily impressive but have a tenuous relationship with reality, which is why Bard claimed that the James Webb telescope discovered exoplanets, why ChatGPT has claimed that the most-cited medical journal article of all time is a piece that doesn't actually exist, why ChatGPT told a friend that he was married to a number of women he'd never met, had children he'd never had and wrote books that didn't exist. 

It's certainly possible to connect generative AIs to, say, the universe of Google and give it access to a wide array of facts, but that creates its own problems, as Microsoft learned in 2016 when an earlier AI became a racist pig in a few days after scooping up all kinds of garbage online. Those risks should get innovated away in time -- my old friend Andy Kessler makes a compelling case in a recent column in the Wall Street Journal. But, for now, it's safer to constrain these AIs to a discrete set of data, such as is available to an underwriter or claims agent. 

It's also important to see the results from these generative AIs as what they are: a very rough draft. 

Now, as someone who has spent decades doing his thinking with his fingers on a keyboard, I can tell you that even a very rough draft can be extremely valuable. Perhaps the key insight from one of the best books on how to write, "Bird by Bird," by Anne Lamott, is that you have to allow yourself to write crappy first drafts. (She uses a more colorful term.) But professional writers typically find that very hard to do. They're editing as they're writing and can't get out of their own heads long enough to let the words just flow. I tell people that 90% of my time writing is spent not writing -- but the house sure gets clean when I have a big deadline coming up. Something like ChatGPT can address that problem, because it does a great job of organizing a set of facts in a coherent flow. At that point, the writer can look at it and say, "Like this, hate that, let's move this around a bit," and so on. In fact, having AI do the first draft clears the way for another of Lamott's key insights, that you have to be willing to "kill your children." (I told you she was colorful.) She means you have to be willing to slash away even at words you've slaved over and fallen in love with. And it's a lot easier to be ruthless about cutting something you haven't written.

The writer still has to provide the insight, the personality or whatever else a piece requires, but generative AI can take a big chunk out of a part of the process that I, at least, find painful. And the same should be true for many preparing reports and doing other kinds of work in any number of fields.

This kind of collaboration between AI and human is already done in other fields. For instance, AI is often used to screen mammograms before a radiologist reviews them. The AI can spot abnormalities so tiny that a radiologist might miss them and can also let the radiologist know which areas to zoom in on and which mammograms to focus on. The radiologist makes the call but gets a big assist from the AI.

Quantum computing also shows how powerful an unsteady technology can be when combined with error correction. Qubits only stay in a quantum state for a fraction of a second and are more likely to produce errors as they fall out of that quantum state, But researchers are finding ways to correct those errors on the fly and use conventional computers to verify results, letting quantum computing advance at startling speed.

My mantra, as always, is, Think Big, Start Small, Learn Fast. Just be doubly sure in the case of generative AI that you do your learning in private, not in public, as Google did. 

Cheers, 

Paul

P.S. My favorite example of "killing your children" is the short story, "The Swimmer," by John Cheever. It began as a full-length novel, but he killed so many of his words and ideas that it became a 3,500-word story that is regarded as perhaps his best. I have no idea how he had the mental fortitude to do that, but I respect the effort mightily. 

My friend Adrian last month shared a McKinsey deck from 1993. (You can find it here.) One of the last paragraphs of the 38-page paper says: "These principles are obvious. Why do so few companies follow them? Because the senior management commitment required is substantial while the payoff is down the road." That line has aged really well!

It is a pity for an insurer not to use data and technology to do their job better nowadays. All the insurers (that survive) will be #insurtech: meaning players using technology as the key enabler for achieving their strategic goals. So, let's take a look at the current state of insurtech to see why you should focus your innovation efforts on the basics of the insurance business.

Since the beginning of the year, we have seen a new report almost once a week about the 2022 funding to insurtech startups:

• FT Partners
• Gallagher Re
• CB Insights

The insurtech index (HSCM Public InsurTech Index ) has performed pretty badly:

And you can find analysis saying that it is the worst-performing segment among all the fintech segments:

See also: Telematics Consumers Are Ready to Roll

At least, the insurtech listed segment has shown a perfect correlation with fintech: As I anticipated in the newsletter edition last June, the market has NOT turned its back to insurtech!

The drop in the evaluations is not about insurtech, it is more about fintech.

Looking at the individual securities that make up the HSCM Public InsurTech Index, we can appreciate a diversified spectrum of performances.

Source: Google Finance

Let's take a closer look at one of the outliers: Kinsale Group, a specialty line insurer known...for frequently beating analyst expectations.

This 14-year-old insurer has generated a TSR (total shareholder return) of 43% a year for the past five years. Their market cap is almost $7 billion today, and they underwrote about $800 million in premiums with fewer than 450 employees in 2021.

Is Kinsale Group an insurtech? Was HSCM right when it decided to include them in the basket of the insurtech index?

• The answer depends on your definition of insurtech. If you mean "players with a bloody loss ratio," no, they aren't. Their combined ratio was an awesome 80% in the first nine months of 2022.
• Instead, my definition of insurtech is "players using technology as the key enabler for achieving their strategic goals." So, they definitely are an insurtech player. One with solid insurance foundations.

Looking at their recent analyst presentations, you can feel it:

Source: Kinsale Group

Source: Kinsale Group

Kinsale's story is about the focus on the basics, and yours should be, too. Your insurtech approach makes sense only if it allows to overperform the traditional approach on one or more of these KPIs: stronger underwriting returns, leaner capital or higher asset leverage. 

Let's look at a (BIG) failure. In one of the first editions of this Insurtech Facts & Figures newsletter, I analyzed Root, a player known for being telematics-based. I concluded by affirming that "Root is not using telematics data well for pricing and risk selection. Moreover, they have even denied the usage of telematics data for claim management and for changing driver behaviors."

Looking at their last shareholder letter it seems they got it, gave up on their telematics approach and pivoted to embedded insurance:

• Telematics is mentioned two times, the first on page 14 of 24. UBI is not even present.
• Embedded is mentioned 18 times in the first 14 pages.

To have completely missed the development of adequate telematics capabilities -- while burning $1.5 billion -- has not been the only sign of Root's poor governance: There is the recent story of about $10 million diverted, according to a recent lawsuit, from advertising to buy luxury homes by an ex-executive at Root. Well, this $10 million represents less than 0.7% of the cumulative losses, but more than 12% of the Root market cap on Feb. 10.

To make even more evident the missed opportunity in Root's journey, I want to show the contrast with a telematics-based MGA that is doing pretty well: High Definition Vehicle Insurance (HDVI).

At the IoT Insurance Observatory peer discussion last September, Todd and Chuck presented their telematics approach to achieving a loss ratio 20 percentage points better than the average U.S. commercial auto business:

• continuous underwriting obtaining relevant up-front self-selection, and more accurate pricing of the risks;
• risk mitigation while drivers are driving, and a structured driving behavior change program;
• usage of telematics data for a proactive and enhanced claim process.

HDVI is going through a journey where the company's processes are designed to exploit the value of telematics data, the telematics competencies are further developed and this improves the key profitability drivers of their commercial auto insurance business.

See also: Driving Into the Future of Telematics

Swiss Re together with the IoT Insurance Observatory did a survey on 10,000 policyholders around the world. The key takeaway has been that -- everywhere -- policyholders are ready to adopt telematics: 54% are absolutely positive about telematics, and only 21% are against it. Here are the results.

If you are a personal auto insurer, this is a concrete opportunity

However, you should not create a telematics program because it is cool or because some of your competitors have introduced oe. You should identify how to use the telematics data to affect your key profitability drivers, and you should adapt your business processes to do it. Step by step, you will develop the necessary telematics capabilities for achieving the results you are looking for, and you will start to do more with this data...creating a virtuous circle.

In a nutshell, be more like HDVI and less like Root.

Nobody wants to hear those words: “Rejected,” ‘”Detained,” “Do Not Enter,” “Banned.” That’s especially true if your business depends on imports into the U.S. You very much don’t want a Detention Letter from Customs and Border Protection (CBP). However, a new trade law has importers taking notes on how to comply with the Uyghur Forced Labor Prevention Act (UFLPA).

The act bans the import of goods or commodities from China that are produced with forced labor. Effective last June 21, the act mandates a “rebuttable presumption” that any products made wholly or in part in the Xinjiang Uyghur Autonomous Region (“Xinjiang”), or by any Chinese company on a U.S. list of entities involved in the use of forced labor, are made with forced labor and banned from importation into the U.S. To date, this is the only federal law in the U.S. focused specifically on Environmental, Social & Governance (ESG), and it passed by overwhelming majorities in both houses of Congress.

Expansion of the global economy and the devastating impact of the COVID-19 pandemic on supply chains contributed to enhanced risks and probabilities that forced labor has penetrated a vast majority of company’s supply chains. Forced labor is in everyday goods, from the foods you eat, to the clothes you wear, to the car you drive, according to current research on global forced labor.

Over 27 million people around the globe are trapped in forced labor. The links between forced labor, products and abuses is not just in Xinjiang but has spread throughout the global economy. A high percentage of the world’s luxury items, cotton, textiles, minerals for EVs, tomatoes and spices, beryllium in electronics, aluminum in automotive parts and polysilicon in solar panels, for instance, are produced in or sourced from the Xinjiang region. The UFLPA guidance points to the International Labor Organization’s (ILO.org) list of forced labor products and countries, as many goods are transshipped and raw materials from Xinjiang are mingled with goods from other countries that make their way into the U.S. Thus, forced labor is hidden in supply chains.

Since the UFLPA went into effect, importers have been caught off-guard and detained by CBP for suspicion of forced labor in their shipments of goods. Importers are incurring expenses like inspection fees, storage, attorney fees, re-export or destruction of goods and business disruption, to name a few. The trade ban only gives importers 30 days to present clear and convincing proof, to address the presumption of forced labor. So, for example, around many ports, warehouses are filled with solar panels, as polysilicon used for solar cells is mined as quartz in Xinjiang.

Is this kind of supply chain disruption insurable, you might ask? The short answer is “yes.” For example, a new insurtech, FloraTrace, has designed a parametric insurance product for importers. The payment trigger is receiving a UFLPA Detention Notice from CBP. The insurance offsets the many expenses incurred for hidden forced labor. FloraTrace also uses isotopes and chemical analysis technology to verify origin of raw materials, so importers can illuminate their supply chains and make decisions for remediation, decoupling or diversifying their suppliers to pursue sustainable sourcing practices. 

See also: Adding ESG to Investment Practices

A recent wave of regulatory pressure and requirements for ESG due diligence are necessitating active supplier risk management across emerging focus areas such as human rights abuse in supply chains. The new law mandates that importers trace their supply chains down to the raw materials. A recent Deloitte study interviewed hundreds of businesses and found that only 10% have good visibility deep into their supply chains, so there remains a lot of work to do to address hidden forced labor risk.

Changing sourcing patterns is complex and an intertwined, global issue that will not be solved overnight. But resilience in supply chains can occur, and companies can recover…and even thrive with active risk management and risk transfer solutions to move toward greater sustainability.

Rising losses in the property and casualty insurance sector can partly be attributed to the increasing frequency and intensity of large natural disasters, as well as the movement of populations to regions more susceptible to catastrophes. However, an often-overlooked yet significant factor is the lack of granular and accurate information about potential hazards – and exposure to loss at every insured location.

From a risk/analytics perspective, it’s clear that the industry needs to improve its methods of evaluating, underwriting and pricing property risks – and more precisely choose and price policies according to actual risk.

The root cause of the issue is the inadequacy and ineffectiveness of conventional, territory-based definitions and pricing methods. Insurers face the challenging task of striking a balance between having territories big enough for credible statistical analysis and small enough to encompass regions with uniform exposure to risk.

The limitations of territory-based rating can become a thing of the past as a result of substantial advancements in Geographic Information Systems (GIS) and Geospatial Artificial Intelligence (GeoAI) – and the increased access to location-specific data and risk scores that these technologies can offer.

See also: How Geospatial Data Lowers Traffic Risk

Geospatial Hazard Rating leverages these technologies to provide location-specific data and hazard scores. These scores rely on complex calculations, made rapidly with the assistance of GeoAI, and delivered in real time through application programming interfaces (APIs). Geospatial Hazard Rating is produced for each individual address by aggregating historical data and events for a given peril within a specific geographical radius instead of relying on much larger, arbitrary and less accurate territorial boundaries.

The increased detail and accuracy of Geospatial Hazard Rating provide a range of benefits over territory-based ratings, most notably:

1. Accuracy in Risk Assessment — Geospatial Hazard Rating can isolate the geographic distribution of risk at the individual residential or commercial property level, as opposed to the much larger area municipal, ZIP code and census block boundaries used in territory-based methods. As such, insurers can precisely understand, underwrite and price a specific property’s risks.
2. Increased Premiums Without Rate Changes — Another benefit is the ability to respond to changes in risk levels without rate changes. When a specific area starts to see more damaging events, the corresponding hazard scores for those specific addresses will increase and result in a corresponding increase in premium at renewal, making some rate changes for an entire territory unnecessary.
3. Fairness and Accuracy in Pricing — With such accuracy comes the ability to tie higher risk probabilities to higher premiums -- and lower risk probabilities to lower premiums automatically when Geospatial Hazard Rating are updated at acquisition or renewal.
4. Supporting Data for Rate Changes — Although Geospatial Hazard Rating will make it less necessary to seek rate changes for geographic changes in risk, in the event a rate change is needed, insurers will have the very detailed data needed to justify the change.
5. Speed and Efficiency of Risk Assessments and Policy Quotes — With specific hazard ratings for every peril for every customer and prospective customer address, Geospatial Hazard Rating enables insurers to greatly increase the speed at which they undertake property assessments and policy quotes.
6. New Risk Insights — Because geospatial data is highly structured, highly objective and collected at a high scale, insurers gain increased abilities to analyze data and identify risk insights that are not possible with traditional territory-based rating. 
7. Loss Prevention — As geospatial data can help discover trends and patterns in specific locations, insurers can help customers better understand their risks and ways to mitigate them. By providing risk insights, carriers are able to engage customers in the risk management process and build relationships, while promoting loss avoidance.
8. Reduced Losses and Expense Ratios — Although it is early in the adoption of geospatial data, the business use cases for such applications point to a real and significant opportunity to reduce losses and improve combined ratios by better aligning price with risk – and eliminating the burden of administering territories.

These benefits collectively present a significant opportunity for property and casualty insurers: By shifting away from traditional territory-based ratings, each property can be evaluated accurately and equitably based on its actual exposure to loss.

After Tesla and Ford announced they were cutting the sticker prices for some of their electric vehicles (EVs), many people began asking whether that means the price to insure them would follow suit — but the answer isn’t clear-cut. 

At the core, insuring an EV is the same as insuring an internal combustion engine vehicle. There is the liability portion, the comprehensive and collision portion. And the pricing comes down to the complex web of underwriting connecting the vehicle and driver’s details, along with specific geographic risks. 

Even still, insuring electric vehicles for now has been costlier than comparable gasoline vehicles. Part of that is sticker price, for sure. EVs do tend to cost more. But for now, at least, they can also cost more after a claim. 

Part of the post claim economics comes down to market forces. Because EVs make up a tiny portion of the number of vehicles on the road right now, there aren’t very many certified EV mechanics. There are more than 200,000 ASE-certified car technicians in the country but only a few thousand who are certified for EVs. 

That means the few who are certified are able to command a premium for their services – driving up post-crash repair costs. 

The same goes for aftermarket repair parts. Although supply chains are easing, in general, making aftermarket parts more accessible for most vehicles, the same can’t necessarily be said for EVs. 

Without a huge fleet of EVs on the road, few manufacturers have the incentive to make generic replacement parts specific for them, meaning that most repairs have to be done with the more-expensive OEM components. 

Higher repair costs translate to higher costs post claim, which translate to higher premiums for EVs. 

And then there is the battery question. Because the batteries represent such a large percentage of the cost of the EV, any damage to the battery pack could lead to an insurer totaling an otherwise low-mileage EV. That is a phenomenon many Tesla drivers have been seeing as their low-mileage vehicles get into seemingly small crashes, only to be totaled by the insurer. 

From an insurance agent perspective, educating EV drivers about the risk of totaling their vehicle presents a good discussion opportunity to pitch a gap policy — particularly if the driver is still upside-down on their auto loan. 

But that doesn’t translate to lower costs in the short run. 

Many analysts don’t believe the premium discrepancies between EVs and gasoline vehicles are here to stay, though. 

For one, battery prices are coming down rapidly. One MIT study showed that since they were first commercially produced, lithium-ion batteries have plunged in price by 97%. And though that decline has tapered off of late, and batteries even saw a slight increase in cost in the past year, the long-term trajectory of the cost per kilowatt hour should continue to fall fast, meaning the most costly component of an EV shouldn’t continue to be cost-prohibitive, at least in the long term. 

The other reason EVs shouldn’t be more costly to repair forever is that once market forces make labor and spare parts more abundant, there are just fewer failure points on an EV than on an internal combustion engine. 

By most counts, typical gasoline-powered vehicles have more than 2,000 moving parts, to only a few dozen in a typical EV. With fewer places to fail, and all things being equal, repairing an EV will eventually be on par or less expensive than a gas-powered equivalent vehicle. 

See also: Focus on Evolution, Not a Revolution

Another phenomenon potentially pushing down EV premiums in the medium term is better claims data. Tesla is pioneering two programs in that area. One program is in their white-label insurance program, where Tesla partners with insurance carriers in several states to offer Tesla-branded insurance. 

They are using that insurance relationship to aggregate post-claims data and feeding that back into their engineering process. After Teslas get damaged, the engineers evaluate whether changes to their design could have prevented that damage in the first place or at least made it easier to repair after the fact. 

The other area Tesla is using data to potentially drive down insurance costs is by anonymously aggregating driving behaviors of Tesla owners. The theory is that the suite of safety features standard in a Tesla could make them safer to drive than a similar vehicle from another manufacturer and thus less likely to get into a crash in the first place. 

As that data gets incorporated, it is possible that premiums could end up coming down, as well. 

More costly vehicles tend to be more expensive to insure. So, on its face, Ford and Tesla dropping their MSRP could theoretically end up bringing down their premiums. But when it comes to meaningful decreases in EV insurance premiums, market forces, rich data and better supply chains for basic components may make the bigger difference and could even mean EVs could end up being the less expensive vehicles to insure before long

The metaverse was one of the major themes at CES2023, as evidenced by a wide range of sessions and tech solutions. The keynote from the Consumer Technology Association identified metaverse as one of the top themes, with the tagline of “Closer Than You Think.” I believe there are arguments both for and against the near-term emergence and impact of the metaverse. But first, it is important to define what is even meant by the term – and there is no universal agreement on the metaverse concept. We will explore the concept in this blog, as well as the implications for the P&C insurance industry. 

My definition of the metaverse is as follows, although others may have different views. The best way to think of the metaverse is as a set of collective virtual worlds. By collective, I mean that multiple people can join and collaborate in the same virtual space. This differentiates the metaverse from virtual reality applications used by a single individual via a VR headset. Some think of the world painted by the novel Ready Player One as the ultimate metaverse. In some ways, that is appropriate, but the reality is likely to be very different. The Ready Player One world is gaming-centric. Games will certainly be a leading component of the future metaverse. However, the metaverse will have the most impact and value when it includes shopping, traveling, learning, telehealth, virtual meetings, social interaction and other aspects of life – all within virtual worlds. In essence, the metaverse will become the next generation of the internet.  

What is necessary for this to become a reality is the acceleration of immersion technologies that were on full display at CES2023. Technologies addressing every human sense – touch, smell, taste, hearing and sight – were prominent at the event. A second critical success factor is the maturity and broad availability of content creation platforms. There were many solutions featured at CES, and the sophistication (and content libraries) are rapidly increasing. Ultimately, there need to be realistic virtual worlds for people to inhabit and actively participate in the wide variety of activities envisioned.  

Despite technological progress, the idea of millions of people immersed in virtual worlds seems like decades away. Remember that Ready Player One was set in the 2040s. However, consider these statistics:  

• The U.S. has 164 million gamers today, with about 60% being more serious gamers. As immersive experiences improve and virtual worlds become even more realistic, these gamers will be the first true inhabitants (if I can call them that) of the metaverse. (Source: The Consumer Technology Association, 2022).  
• A recent McKinsey study finds that the average person expects to spend almost four hours a day in the metaverse in five years. Gen Z expectations are closer to five hours, while Baby Boomers are a bit less than two hours a day. Whether this comes to pass or not, it is still remarkable that the expectations are this high.  (Source: McKinsey Metaverse Consumer Survey, February 2022).  

So, what will it be? Metaverse adoption and implications in the next decade, or is the true metaverse a couple of decades away? My view is that it probably trends toward the latter. Much like the evolution toward an autonomous vehicle future or the emergence of a true general artificial intelligence, the metaverse is likely to evolve slowly over the next couple of decades. The tech is evolving rapidly, but the content and user adoption may take a while before it becomes pervasive. There will certainly be implications in the next decade for gaming and other specific areas, but it seems unlikely that the average person will be logging into virtual worlds and spending hours every day in that timeframe. 

See also: The Metaverse and Financial Services

How should insurers think about the metaverse? Despite the press and the hype around this topic, I do not think it is something that should be high on the priority list for insurers. To be sure, the industry should track developments and consider future implications. But for now, the focus should be more on virtual and augmented reality for use cases such as training and healthcare. It is fun to think about, and the metaverse may dramatically alter human existence in the future, but that future is a ways off.

The use of telematics to monitor consumer driving behaviors is becoming table stakes in auto insurance, yet the technology also offers strong opportunities for enhancing the policyholder experience. Leading carriers are now evolving their use of telematics to differentiate their usage-based insurance (UBI) products to provide a robust, seamless user interface, streamline claims handling and influence the policy buying experience.

Carriers Exploring New Ways to Aid Policyholders via Telematics 

As carriers look for ways to expand the use of telematics in usage-based insurance (UBI) products, one notable area they can add value is emergency assistance. Telematics can provide critical location details in case of a medical emergency, regardless of whether a vehicle accident has occurred. The same information makes it easier for drivers to summon help when they have a flat tire, are locked out of their vehicle or have run out of gas. These capabilities are present in vehicle telematics platforms such as Subaru’s Starlink or Infiniti’s InTouch systems, and carriers such as Nationwide are also now offering sophisticated roadside assistance platforms that enable aid to be summoned and tracked for a variety of needs. 

There are also an increasing number of carrier and vehicle telematics integrations. State Farm and Ford have recently teamed up to connect State Farm's Drive Safe & Save program, with specific eligible Ford and Lincoln vehicles to further leverage telematics services. General Motors and OnStar have also partnered with American Family to underwrite insurance policies that use telematics. These integrated systems monitor critical vehicle data and can notify a policyholder when preventative maintenance may be due or recommended. They can also be used to rapidly identify the implications of an accident and any related repair requirements.

In addition to monitoring driver performance, auto carriers can also use telematics data to coach customers on safer driving behaviors and to offer driving safety tips. State Farm, for example, offers its Steer Clear app to drivers under age 25, including educational modules on topics such as using Bluetooth while driving, distracted driving when texting or playing games and handling special driving situations. The app also supports reporting to a driver “mentor,” such as a parent or guardian. These types of instructional capabilities are becoming more sophisticated and personalized, helping carriers strengthen policyholder loyalty.

See also: Telematics Consumers Are Ready to Roll

Collision Detection and Claim Submission - Where the Rubber Meets the Road

Innovation in telematics tools really comes to the rescue when the unthinkable occurs. These robust applications can use data collected from vehicle sensors to analyze the extent of damage to a vehicle and to assess the likelihood of severe injury to passengers after a collision. According to Keynova Group’s Q3 2022 Mobile Insurance Scorecard, within the last two years, several large insurers—including Allstate, Farmers, GEICO and USAA—have introduced telematics solutions encompassing accident detection, roadside assistance and claims filing.  Allstate and GEICO further advance policyholder adoption by embedding the accident-sending telematics technology directly into their primary servicing apps, where users have the benefit of finger-tip access to key policy details, information about their driving behaviors, as-needed accident and claims assistance and streamlined claims filing requirements.   

To support claim submission after an accident, telematics can reduce the amount of information that a policyholder needs to submit, potentially eliminating the need for an onsite insurance inspection and speeding the claims process. Further integration between carriers’ and vehicles’ telematics systems will reduce accident inspection requirements and help to identify issues that would be difficult to detect visually. In addition to supporting precise location details, capturing the time of day via the telematics solution can be used to indicate whether driver fatigue may have been a factor in an accident, and data indicating safe driving behaviors might suggest a reduced chance that the driver was at fault. Maintenance details could also highlight other possible contributing factors for evaluation. 

New Models for Selling and Purchasing Vehicle Insurance 

The connection between vehicle telematics systems and insurance also supports embedded insurance sales opportunities. For example, General Motors recently began to roll out an integration of its OnStar telematics and connected-car services with insurance underwritten by American Family. GM also plans future use of an in-vehicle camera that tracks drivers’ eye and head movements to help the company set appropriate rates for each individual driver’s insurance coverage. Tesla also now sells insurance for some of its models in several states, employing a safety score derived through a UBI application built into the vehicle to determine a monthly price for the driver’s insurance. These types of embedded integrations of the vehicle and its driver’s insurance will become an increasingly prevalent aspect of the policy purchasing experience as telematics continues to influence and monitor driving behaviors as well as the vehicle itself.  

Use of carrier telematics systems can also be encouraged by offering no-risk trials. At least one major U.S. auto insurance carrier – Progressive – now offers policyholders the option to test-drive its telematics-based driving application. Users simply download the app, register for the Snapshot Road Test and then drive for 30 days. At the conclusion of the road test, users receive a no-obligation, personalized policy quote based on their specific driving behaviors—information that the carrier would otherwise not have access to. Expect to see more carriers offering options like this as they see value in detailed advance knowledge of their potential policyholders driving behaviors and, in turn, as consumers recognize the multiple benefits they can leverage by using telematics technology.

Auto policies backed by telematics are expected to continue to expand their variety of capabilities. As these telematics applications continue to be updated, more consumers will embrace the technology to save money, and insurers will become more adept at using telematics to differentiate their products, reduce risks and expenses and continue improving the policyholder experience.